This invention relates to a new and improved system for distribution and use of virtual stored value cards. One particular example where the invention may be used is in pre-paid virtual cards for mobile voice and data services.
Wireless or mobile phone operators typically have post-pay and pre-paid subscribers for their voice & data services. Post-pay subscribers pay for airtime they use at the end of a billing period, typically at a pre-determined rate, once a month. Pre-paid subscribers, in contrast pay for a pre-set amount of airtime, at a pre-determined rate, before they start using the airtime purchased. Pre-paid subscribers essentially create a stored-value account, from which they can use the minutes that they have purchased. The mobile operator's system keeps track of the minutes purchased and subsequently used by pre-paid subscribers and prompts them as their stored-value amounts near depletion. At this point pre-paid subscribers have the option to replenish their airtime. The operation of adding more minutes of airtime to an existing pre-paid account is typically referred to as the “top-up” or “top-off” operation.
Pre-paid services are one of the fastest growing segments of the mobile telephone operator business (mobile operators or MO). Pre-paid customers require no credit, no deposits, no contracts, no account fee, no age limit, but simply a periodic top up. Pre-paid customers do not need to demonstrate established credit or provide any details to mobile operators.
As the cost of mobile handsets and associated infrastructure has steadily decreased over time, many markets have seen an exponential increase in mobile users. As the current trend continues, the number of mobile installations may outgrow existing landlines. As the mobile handsets improve (hardware—processing power and memory, software, display—size and resolution, form factor, battery life, etc.) and the bandwidth offered by the mobile operator's increase, the new services offered by mobile operators will increase substantially. Because of decreasing costs of the handsets and the potential of value added services, mobile operators have been able to subsidize handset costs and offer pre-paid services to a large number of new customers to increase market share substantially. In some markets pre-paid customers account for as much as 70 to 80% of the total customer base. The pre-paid services have become popular for several reasons.
Pre-paid subscribers do not have to deal with long-term contracts—an element typical to a lot of calling plans offered by mobile operators to essentially allow them to subsidize the cost of the mobile handset. As the cost of handsets has continued to drop, and also as handset chum rates continue to climb, subscribers have the opportunity of purchasing secondhand devices, further increasing the number of overall wireless subscribers. Owing to these factors, the mobile operators can now afford to offer pre-paid calling plans without any rigorous long-term contracts.
Since pre-paid calling plans do not require the subscriber to pay the charges at the end of the billing cycle, cash starved subscribers do not have to set aside any funds. This allows the subscriber to purchase service, without any elaborate budgeting.
Pre-paid subscribers do not have to deal with any unused airtime on fixed plans. For instance, typical plans will have a preset number of minutes of airtime for a certain value, which would expire at the end of the month. If these minutes are not used, they expire and the subscriber loses the value associated with the unused airtime.
Pre-paid subscribers do not require a credit account, or in many cases even a bank account, allowing them to purchase the service over the counter using cash, at various retail outlets and mobile operator certified distribution centers in the form of “scratch-off” plastic cards. This is ideal for the lower and middle income groups, students, and also for pre-dominantly cash economies, in emerging markets, where the pre-paid product has been very successful.
Mobile Operators (“MO”) typically distribute their handsets (or alternately SIM cards) to pre-paid subscribers through controlled distribution channels—certified distribution outlets and/or participating retailers. The handsets come with some airtime preinstalled, as an incentive to the subscriber, and also allowing them to call the mobile operator to setup and “top-up” an account. The top-up operation to replenish airtime for pre-paid accounts may be accomplished in one of the following ways (FIG. 1 and FIG. 2):
The subscriber may top-up a pre-paid account by dialing into the MO's system, using their established payment account—credit, debit, etc. This may be done manually by speaking to a MO customer service representative, by using an automated voice activated response (“VAR”) system, or through the Internet.
To manually top-up a pre-paid account, the subscriber calls an MO customer service representative, reads the pre-paid account number, and states the additional airtime required and the preferred payment method, which involves reading the credit card account number, expiry date, etc. This typically involves a dedicated session between the subscriber and the customer service representative, which is cumbersome, labor intensive and expensive.
In contrast, the automated VAR procedure involves dialing into the MO's system, selecting the number of minutes or airtime required, and entering or setting up a payment account, typically using the MO's automated voice activated response 110 system.
One of the channels for top-up is through the Internet. Pre-paid subscribers may top-up their accounts by connecting to the mobile operator's pre-paid system through the Internet, entering a password to access their account and top-up using a credit account.
In addition, a subscriber may setup a new pre-paid account, or alternately top-up an existing account by going to a MO certified distribution center. These distribution centers may either be a retail environment, or possibly a certified bank that allows the subscribers to top-up their accounts using their ATM infrastructure or bank checks.
One of the more popular methods of top-up, especially for people who do not have a credit card or bank account or established credit and want to use just cash, requires purchasing a plastic card with a code for cash, which typically would be scratched off by the purchaser. These cards are distributed at the retail establishment—grocery stores, gas stations, etc.—in various denominations such as $10, $20, $50, $100, etc., where the subscriber would purchase a plastic card for the amount of required airtime. This plastic card is distributed in a tamper proof package, and is purchased from a retailer. The subscriber then scratches off the code, enters this code manually through the mobile handset into the MO's system, which in turn replenishes the amount of airtime purchased by the subscriber.
There are several disadvantages to present methods of topping-off pre-paid accounts. The mobile operators' cost for offering pre-paid airtime is as high as 20-30%. These costs are essentially incurred at various levels, for printing, packaging and distributing the cards, commissions for various intermediaries, depending on the distribution channel and process adopted. The manual system incurs additional labor costs, since it requires a dedicated customer service representative to walk the subscriber through the entire setup and top-up process. Add to this, the credit card issuer's fees for the transaction (“Card Holder Not Present” (CHNP) transactions), and the overall cost incurred by the mobile operator to support this distribution channel is very high.
The automated VAR channel may reduce a fraction of the cost by removing the labor component from the manual system. But this process has proven to be extremely cumbersome. Topping-up the account from the mobile device handset is awkward for the user, given the state of the handset's form factor, user interface, screen and keypad sizes. Thus, errors occur, especially during the setup operation, when the user must alternatively hold the handset near the ear to hear the VAR system and then hold it in front of the eyes to dial appropriate numbers. This eventually drives impatient subscribers to less cumbersome distribution channels, which in turn have a higher cost associated to the model for the mobile operator.
Certified MO distributors typically provide over-the-counter service for pre-paid subscribers, which incurs retail costs, in addition to the costs mention above. Because there are only a limited number of certified centers, the overall reach of such distribution centers is limited. Since many of these certified centers have a direct hook-up into the MO's back-end system, adding on such centers require more direct hook-ups, increasing the potential of fraud and adds to the accounting and inventory management costs.
Neutral distributors who support several mobile operators' products, typically charge a high margin for shelf space, increasing the distribution cost for the mobile operator.
One of the most popular channels of distribution for pre-paid products is through existing retail distribution channels—gas stations, grocery and department stores, etc. The reach of these channels, along with the ability to use cash, are the top most reasons for its popularity, but are also the most expensive for the mobile operator to support.
The mobile operator incurs some cost for producing the plastic cards, packaging and distributing them. In addition, the mobile operator incurs costs for tracking and managing physical inventory, ironically for a non-physical or virtual product such as airtime.
Retailers charge the mobile operators a very high margin for the distribution of these plastic cards, as they take up expensive shelf space. These margins form one of the integral components of the overall costs incurred by the mobile operator for the distribution of plastic pre-paid cards. Cash handling expenses, and credit card fees add to the overall cost, along with other cost elements typical to a retail environment.
Regarding transactions in general, the cost of a transaction, in the existing credit or debit environments supported by the widely accepted banking networks, typically ranges between 1.2 to 5.0% of the transaction, plus an additional 10 to 35 cents. The cost these transactions renders existing credit and debit transaction systems impractical for “sub to single digit dollar” transactions, typically referred to as micro-payments. Many transactions, especially proximity transactions for applications such as vending machines, toll, parking and transit, fall under this category which could be well supported by a stored cash value payment system.
The current stored value payment systems are inefficient, due to the lack of interoperability across payment worlds and end to end security. Consequently, the existing stored value payment systems have not been able to successfully cater to the eCommerce and mCommerce environments. In the brick and mortar retail environment, again the lack of a truly global interoperable and secure system has been responsible for less acceptance by merchants and consequently less penetration among users. The existing systems have also failed to provide an effective payment system for minors, who typically do not qualify for a credit or debit card, for credit challenged individuals and for person to person transactions.
Because existing credit and debit transaction systems are impractical for micropayments, cash is the predominant form of payment. Cash may be cumbersome, subject to theft or loss, and in some cases owing to the lack of local currency, impractical and extremely inconvenient. In terms of the merchants, owing to the high potential of fraud and theft, cash transactions are associated with a very high cost of handling and collection. Thus need exists for a suitable payment system to address the above outlined issues, and at the same time reduce cash transactions for the convenience of the users and merchants alike.